Have Western Sanctions Against Russia Backfired?

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Instead of turning the Russian public against their leaders, as the West had hoped, sanctions seem to have made Russian patriotism take on an increasingly anti-Western character.

Russian President Vladimir Putin. Credit: Reuters/Files

Moscow: The European Union has decided against imposing any new sanctions against Russia as a result of its devastating air assault on rebel-held east Aleppo. It seems that sanctions fatigue is setting in among many EU members, and there may be some very good reasons for that.

For over two years the US, the EU and other allies have been ratcheting up financial, economic and political pressures on Russian individuals, banks and institutions deemed to be connected with Kremlin’s Ukraine policies. The hope was to generate enough pain to cause Vladimir Putin to change his mind, influence the Russian public to turn against Kremlin policies, or at least cause sufficient economic dislocation to force Putin to let go of Ukraine. This is probably a good moment to ask, how is that going?

What was the extent of sanctions?

Following Moscow’s annexation of Crimea in March 2014, the US and EU started by targeting dozens of Russian and Ukrainian politicians, separatists and businessmen known to be close to the Kremlin, with asset freezes, travel bans and other measures, on the theory that they would appeal to Putin to alter course in Ukraine.

The measures were stiffened a few months later, as leading Russian state banks, arms companies and energy corporations such as Rosneft and Gazprom, were prohibited from raising long-term financing in the West, or from refinancing their existing loans. Russia was banned from importing any civilian items that might have military applications and technology vital to the development of Russia’s oil industry was blacklisted.

Critics at the time worried that the West was pulling its punches since Moscow’s main source of revenue, exports of oil and gas, remained sanctions-exempt.

Nonetheless, the measures took a deep toll on Russian companies that had become most integrated with the global economy and some Russian analysts point out, disproportionately hurt Russia’s most pro-Western business leaders.

“For big companies, sanctions sharply limited their room to manoeuvre,” says Alexei Makarkin, deputy director of the independent Center for Political Technologies in Moscow. “It meant less access to foreign markets and sources of capital. Formal sanctions may have seemed fairly limited, but actually, we saw much wider ‘informal sanctions’ take hold, as Western companies declined to invest in Russia or sell even permitted technologies because they feared future sanctions. It has caused quite a lot of damage, and led to an economic retrenchment in Russia.”

Experts say it may also have prompted a strategic realignment, as Russia turns away from what it regards as unreliable Western partners toward Asian ones.

Russia also retaliated, with its own sweeping “counter-sanctions” against Western agricultural imports in mid-2014, hoping to enlist political support from European farmers who had become big players in the Russian market over the past two decades.

Has Putin changed course as a result of sanctions?

The Kremlin has visibly not backed down on its annexation of Crimea or its policy of aiding Ukrainian separatists. Plus, a year ago, Putin added to the West’s list of grievances against him by intervening militarily in Syria.

It’s not clear whether sanctions were a factor in convincing Moscow to come to the bargaining table with European leaders in an attempt to find a path to peace in Ukraine. But the two agreements hammered out among the parties in Minsk seem to largely favor Russia’s interests by requiring Kiev to grant “special status” to two pro-Russian rebel republics and engage in decentralising constitutional reforms.

“It should be clear to everyone by now that the West cannot force Russia to do anything by applying this illegal pressure of sanctions. It’s not even worth discussing,” says Andrei Klimov, deputy chair of the international affairs committee of the Federation Council, Russia’s upper house of parliament.

What has been the impact of sanctions on Russia’s economy?

It’s hard to say since around the time sanctions started to bite in late 2014 Russia was also hit by a catastrophic collapse in the global price of oil, its main foreign source of revenue. The oil price drop seems to be the main culprit in the near-halving of the Russian rouble’s value and the spike in inflation to nearly 20% in 2015. Experts in the US estimated that sanctions shaved up to 1.5% of Russia’s GDP in 2015. That was a very bad year for Russia in which the economy shrank by almost 4%. But, aside from a brief run on the rouble in December 2014, there was no sign of panic in Russia.

But by late 2016, Russia’s recession appears to be ending. Experts project a return to modest growth next year, despite the fact that oil prices remain less than half their 2014 peak and sanctions are still firmly in place.

Sanctioned Russian banks and state corporations have managed to pay down their international loans, even though their access to foreign capital markets is still restricted. Indeed, Russia’s foreign indebtedness has shrunk by over a third, further reducing future Western leverage.

Claims by some Russian officials that sanctions actually helped Russia by stimulating economic diversification remain largely bravado. One key exception is Russia’s agricultural sector, which has seen a significant upswing thanks to the low rouble and the banning of competitive foreign food imports.

Nor have Western interests remained unscathed amid the sanctions war. Some European farmers have, indeed, been hard-hit by the loss of Russian markets, while the global oil major Exxon, reported this week that it has lost nearly $1 billion due to the sanctions-mandated closure of its Russia operations.

How has the Russian public reacted to sanctions?

If one goal of sanctions was to demoralise Russians and turn them against their leaders, it appears to have backfired. A tracking poll by the independent Levada Center in Moscow found that 56% of respondents were either “very” or “somewhat” worried about Russia’s international isolation due to the Kremlin’s Ukraine policies in March 2014; by August 2016, that number had fallen to 40%. The numbers of Russians who said they weren’t “particularly worried” or were “completely unconcerned” rose from 39% to 58% over the same period.

“People are becoming increasingly less worried about sanctions and seem to just accept them as part of life nowadays,” says Alexei Grazhdankin, deputy director of the Levada Center. “Asked whether Russia should continue with its political course, regardless of any sanctions, more than two-thirds of Russians now say ‘yes’ it should.”

Some Russian commentators argue that even if the sanctions are eased, irreversible shifts have already occurred in Russia’s geostrategic alignment and the public’s sense of national identity. More than ever, Russian patriotism is taking on an anti-Western character, which looks increasingly permanent.

“The effects of this crisis, and the public’s sense that the West deliberately inflicted it upon us, has consolidated Russians in ways we have not seen in a long time,” says Viktoria Ledeneva, director of the Center of Migration Studies in Moscow, which focuses on demographics and changing social realities. “There is no question we will emerge from this with stronger national spirit and a more unified civic identity.”

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